Marketing Credit Cards to College Students: How the CARD Act Changed the Game

It’s fall and students are back at college soaking up vast amounts of knowledge. At least that’s what the parents think, right? One thing we can be sure of, though, thanks to the Credit CARD Act of 2009, is that students now enjoy more consumer protections. The Act restricts credit card issuers from giving a credit card to anyone under the age of 21 unless they can prove they have enough income to repay credit card debt. If not, a credit card can’t be obtained without a co-signer.

When it comes to marketing credit cards to students, it’s not exactly business as usual. To be sure, it’s still a big money maker. But I think the CARD Act really has curtailed some of the marketing ploys that were commonly used to woo college students. The Federal Reserve recently released the report, College Credit Card Agreements, and it shows that payments to universities, alumni associations and related foundations made by card issuers is down 13 percent in 2010 compared to 2009. And the total of new accounts opened by students decreased 17 percent in 2010 from 2009.

This drop-off is most likely due to the restrictions of the CARD Act. Aside from the age and income requirements, the legislation prevents credit card issuers from offering “any tangible item” (such as t-shirts and free pizza) to students who sign up for a credit card. The issuers also can’t offer any gifts “near the campus” or at an “event sponsored by or related to an institution of higher learning.” But as long as credit card issuers aren’t offering gifts, they can actually market to students on campus.

A lot of people assumed that the CARD Act prohibits this, but it doesn’t. The Act does say that universities “should consider” requiring card issuers to notify the college if they will be marketing credit cards on campus and to give their location. The Act also “suggests” that universities restrict the number of locations where issuers can market and offer credit card and debt education counseling sessions for students. I’m not sure why the legislation bothered listing “suggestions” that can’t be enforced, but I’d imagine that offering water bottles, Frisbees, and the ever-popular free pizza used to help persuade cash-poor students to sign up for cards.

In 2010, the issuer who opened the most credit card accounts with college students was FIA Card Services, a subsidiary of Bank of America. Betty Riess, a spokeswoman for Bank of America, said in an email that Bank of America (including FIA Card Services) doesn’t market credit cards on campus and had stopped doing so before the CARD Act went into effect. Reiss acknowledged that they do some direct marketing, but in a limited capacity.

I also checked with Chase since they still issue a lot of credit cards to students. Spokeswoman Gail Hurdis told me that Chase doesn’t market credit cards on campus—or utilize mailing lists—because the student market isn’t a focus for Chase.

But the colleges still raked in $73 million from credit card issuers. So this is still a big business, folks. Not just for the card issuers, but for the institutes of higher learning as well. I’m glad, though, to see a downward trend in the numbers. From the student’s perspective, that’s a good thing. I’m actually in favor of college students learning how to use credit cards under the guidance of a responsible adult. I just don’t want a stranger on a campus giving my kid gifts in exchange for signing on the dotted line.

Obviously, I didn’t conduct a scientific study or anything, but it’s clear to me that the CARD Act has discouraged issuers from marketing on campus. It doesn’t look good, for one thing. And with the CARD Act restrictions, it’s not a good use of resources for the banks.

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A consumer advocate, Beverly Blair Harzog focuses on credit card issues and provides insight about current news that affects the credit card industry and consumers. She's a nationally recognized expert on credit card issues and is also the co-author of Confessions of a Credit Junkie. Visit Beverly at BeverlyHarzog.com.

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While the Federal Reserve study does show that fewer new college accounts were originated in 2010 compared to 2009, the decrease is not as steep as one would expect, considering the restrictions the CARD Act placed on banks for issuing cards to Americans under the age of 21.

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